Important Tariffs and Economic Updates

The current tariffs include: – 100% on pharmaceuticals – 50% on kitchen cabinets – 40% on upholstered furniture – 25% on heavy trucks Next week, Europe will release important data, such as Business Climate, Consumer Confidence, and inflation figures for September. In the UK, the focus will be on GDP data and speeches from the Bank of England. The EUR/GBP exchange rate shows signs it may revert, as indicated by a ‘dark cloud cover’ pattern and an RSI that is close to neutral. If it drops below 0.8700, support can be found at the 20-day SMA of 0.8686. Should it rise past 0.8750, the next target will be 0.8800. Amid current geopolitical and trade tensions, the Euro faces challenges against the Pound. Issues like NATO tensions with Russia and new US tariffs create a difficult environment for European assets. Traders should prepare for a possible decline in the EUR/GBP exchange rate in the weeks ahead. We’ve witnessed similar patterns before. When geopolitical tensions in Eastern Europe spiked in early 2022, the Euro sharply declined, and the CBOE Volatility Index (VIX) rose over 75% within weeks. New tariffs affecting Europe’s major export market, which had a goods trade surplus of over €200 billion with the US last year, threaten to weaken the Eurozone’s economy and negatively impact the currency.

Strategies and Market Fluctuations

A straightforward strategy is to buy EUR/GBP put options with strike prices set below 0.8700. This way, you can benefit from a price drop while limiting the maximum loss to the premium paid for the option. Key technical indicators, like the ‘dark cloud cover’ pattern, suggest a possible reversal, so puts with October or November expirations could capitalize on the expected decline. Rising tensions are likely to increase market volatility, causing options pricing to fluctuate. We have already noticed a rise in implied volatility for Euro currency pairs, with the VSTOXX index of Eurozone equity volatility climbing 15% this past week. In this environment, buying protective puts is a smart strategy for any portfolios currently invested in Euros. Looking ahead, we need to pay attention to the upcoming Eurozone inflation data for September. If inflation comes in lower than the expected 2.8%, it will further support a bearish outlook for the Euro and may lead the ECB to pause any aggressive policy moves. On the other hand, UK GDP figures will be crucial for GBP, potentially affecting the pair’s future direction. Create your live VT Markets account and start trading now.

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